Liquidity Pool

A sign that the global financial system is in deep, deep water. The world's ten biggest banks have clubbed together to create a £39bn liquidity pool to prevent the banking system from going into meltdown.

That arch rivals like JPMorgan, Goldman Sachs and Citigroup have banded together highlights how deep the fear of systemic breakdown has become.

How will it work?

Each of the banks will be able to tap the reserve whenever they need to boost their cash buffers. They'll be able to borrow up to a third of the total size of the pool, or £13bn. The cash pile is expected to increase as more and more banks sign up to the scheme.

Why have it?

Fear. That the venerable Lehman Brothers was not able to survive the credit crunch has sent shockwaves across the banking industry.

Banks were already extremely wary of lending to each other, but the Lehman collapse threatened to make a bad situation even worse. The implications for banks, and for mortgage borrowers and businesses, were too frightening to contemplate.

Will it work?

The coordinated effort will go some way to removing the immediate threat to the system.

However, Lehman's demise and the takeover of Merrill Lynch by Bank of America will prolong and possibly exacerbate the credit crisis.